Working in Partnership for a Harmonious Globalisation

Speech by Angel Gurría, OECD Secretary-General, delivered at the China Development Forum

Beijing, 24 March 2008

Ladies and Gentlemen,

It is a great privilege to participate in this concluding session of the China Development Forum 2008. The issues addressed and the opinions expressed at this year’s Forum reflect the amazing transformation of China into a more open and influential economy. Globalization is testing our collective talent. The speed and intensity of this process are demanding better policies and better multilateral co-operation. Like never before, we need to work together to improve our economic performance, to make our development more inclusive and to address a growing number of global challenges.

Globalization is the context in which the targets for China 2020 will be reached. China can achieve a harmonious development by working and sharing experiences with other partner countries to address key national challenges.

Let me tell you what we are doing at the OECD to transform Globalization into a more balanced and harmonious process; how we are evolving to respond to global challenges; and why we believe an enhanced co-operation with emerging economies like China is crucial for everyone.

Globalization: beneficial but unbalanced

Globalization has allowed millions of people in developing countries to improve their living standards. Here in China, during the last three decades, per capita real income has risen twelve-fold and more than 400 million people have escaped extreme poverty.

However, the benefits of Globalization have not been shared evenly. By the turn of the century, 1% of adults in this world were estimated to own 40% of global assets. Here in China, there has been a significant increase of income inequality.

But disparities have also grown in developed countries: between 1994 and 2003, gross earnings inequalities increased in 17 OECD countries (out of the 20 countries for which we have this information). In fact, surprisingly enough, between 1995 and 2005, child poverty increased in 17 of the 24 OECD countries for which data are available.

Many people lack the capital and education to make the most of Globalization. But now also the middle classes in developed countries are feeling excluded. And this sentiment is fuelling a return to undesirable protectionist policies. I see some of these fears behind the stagnation of the Doha Development Agenda, the backlash against migration or the rising investment protectionist measures taken ─or threatened to be taken─ by some countries, including against sovereign wealth funds.

Globalization is inevitable, but it is intrinsically neither good nor bad. It is our policy responses that make the difference. Effective and inclusive policies in fields like education, health, innovation, competition, infrastructure, migration, regional and rural development or trade and investment promotion can turn

Globalization into a sea of development opportunities.

Working together for a harmonious globalization

At the OECD we are committed to helping countries make the most of Globalization through better and more effective policies. We are also working hard to generate common understandings and innovative solutions to tackle a wide variety of global challenges. A quick glance at this Forum’s papers gives a clear idea of the urgent need to improve our co-operation.

First, take a look at the current state of the world economy. The US is witnessing one of its worst economic downturns. The European Union is struggling to cope under the burden of a heavy euro. We are experiencing a global crisis of confidence. Oil, gold, metals and food prices are hitting record levels because, among other reasons, they are now being used as stores of value instead of the usual financial assets.

Fortunately, emerging economies are still growing strongly. However, this expansion cannot last long if things continue deteriorating in North America and Europe. In a highly interdependent world there are no “decouplings”. Developing countries will also suffer if we don’t find solutions fast; because they still get most of their export earnings, most of their foreign investment and most of their remittances from North America, Europe and Japan.

Climate change is another planetary challenge. The recently published 2008 OECD Environmental Outlook shows that stabilising greenhouse gases in the atmosphere, at a level which will not cause an excessive rise in world temperatures, is affordable given our projected accumulated wealth and compared to the much greater cost of inaction.

Besides the “what” and the “how”, a critical question is who pays for what. Given that most of the marginal increases in greenhouse gas emissions will happen in developing countries, we need to find a viable cost-sharing formula together. Thus, the solution to this urgent global challenge will only come if all the major players are seating at the same table.

China is a key player in the global effort to curb climate change. Its carbon footprint (CO2 per capita) is still five times smaller than that of the United States, but it is already the world second emitter of total green-house gases; and it is set to become the first in 2008. This has global implications, but also local impact. Northern China, for example, is already running out of water and the Himalayan glaciers that feed its biggest rivers are melting. Therefore, China’s contribution to finding solutions to climate change is strategic.

Reducing world poverty is another global priority. Poverty is the ultimate systemic risk. We cannot go on living in a world where nearly half the population lives on less than 2 dollars a day, where 2.6 billion people have no sanitation services and neglected infectious diseases kill 14 million per year. These are not only figures; these are shattered families, broken dreams, global shame. We have to restore the ethical dimension of economics. We need to produce more harmonious societies.

But all these efforts won’t bear their best fruits if we don’t break the deadlock of the Doha Development Agenda (DDA). Between 2002 and 2005, donors provided an average 21 billion dollars per year of Aid for Trade assistance to developing countries. But those 21 billion dollars a year cannot do much against the nearly 270 billion dollars developed countries pour every year into agricultural subsidies, which have the effect of keeping products from developing countries out of their markets. We must make globalization an inclusive process and the DDA is a critical tool to achieve that.

Population ageing and international migration are other interconnected global challenges. In our member countries, the ratio of older, economically inactive persons per each active worker could double between now and the middle of the century. This could lead to 30% lower economic growth in the next three decades. In China, the population is also ageing rapidly; with the ensuing complications.

International migration is already helping to address the ageing problem and to alleviate the fiscal pressures caused by demographic transition in some OECD countries. However, effective integration policies in host countries need to be in place to take full advantage of migration.

We are also working on other global issues. Quality of education; water; political economy of reform; anti-bribery; corporate social responsibility; innovation, competition. These are all elements to build a stronger international governance system.

To respond to these and other global challenges, the OECD is becoming more global, more inclusive and more relevant. We have already started accession talks with Chile, Estonia, Israel, the Russian Federation and Slovenia. In parallel, we are strengthening our co-operation with Brazil, China, India, Indonesia and South Africa with a view to possible membership.

At the same time, the OECD’s relations with nearly 100 other developing countries have become a two-way avenue of communication and learning. During the past G8 Summit of Heiligendamm the OECD was asked to act as a platform for a dialogue between G8 countries and the major emerging economies that form the so-called G-5 group; China among them.

This represents a historical change for our Organization. We are becoming a real hub of dialogue on global issues; a hub where we share experiences and knowledge to improve our economies and to build a more harmonious Globalization.

The OECD and China: a win-win equation

The engagement of China is a must for effectively addressing the global issues I mentioned before.
Let me repeat what I wrote in the foreword to the second edition of Angus Maddison’s “Chinese Economic Performance in the Long Run”, which I will launch here in Beijing, tomorrow and which tracks the course of China and the world economy over the past 2000 years. “The world faces a new set of opportunities and challenges and China lies at the heart of them. When historians look back at our period, it is likely that few developments will appear quite so striking as the economic emergence of China”.

China has been growing at impressive rates for a long period. This growth has produced important benefits for China and for the world. However, it has also produced important challenges. Innovative policies are needed to curb income inequality and regional disparities, to find a right balance between rural and urban development, to moderate consumption of natural resources and increase the use of cleaner energy, to improve the environmental conditions under which Chinese people live. OECD countries are facing similar challenges, which they are all trying to tackle through sharing experiences and solutions.

The Chinese government has decided to address this agenda and to make the necessary adjustments to produce a more “harmonious development”, a concept which is very close to the core mandate of our Organisation.

A lot has occurred since we launched our programme of co-operation and dialogue with China since 1995. We have worked together to produce more than 100 reports, providing comparative assessments and policy recommendations in a wide range of issues. They have also contributed to build a better understanding about the complexities and potentialities of China.

The OECD Environmental Performance Review of China raises the need to extend the use of market mechanisms for achieving environmental objectives and to increase and diversify the sources of environmental finance; to upgrade SEPA from an Agency to a Ministry, which has recently been decided; and to make local officials more accountable for their environmental performance.

In our Review of the Chinese Innovation Policy we explored, together with Chinese authorities, alternative ways to boost investment in science and technology; to foster corporate governance as a source of entrepreneurial innovation; to expand the sources of finance for new ventures; and to strengthen intellectual property rights.

The World Energy Outlook 2007, by our sister organization, the International Energy Agency (IEA), focuses on China and India and provides a prospective view of their energy needs during the next three decades. Through the Nuclear Energy Agency, which is also a part of the OECD, we look forward to supporting China’s ambitious nuclear energy development program, especially on the safety aspect.
In close cooperation with the Development Research Centre of the State Council, we are now engaged in a review of China’s rural policies, a top priority of the Chinese leadership.

The People’s Republic of China is participating in a number of OECD committees in different areas, for example: Economic Policy; Fiscal Affairs; Science and Technology; Harmful Tax Practices and others. It has also participated in peer-reviews of the Economic Development Review and Environmental Policy Committees. Thus, China not only benefits from hearing the experience of others, but is able to make its views known on many different issues of global importance.

Our collaboration with China has been growing gradually, but productively. With our new mandate on Enhanced Engagement, I am confident that we can build a triple win partnership: with benefits for China, for the OECD, and for the world economy as a whole.